Jury is still out whether Beijing’s clampdown on forex will affect Macau

February 15, 2019

It is currently unclear whether Beijing’s latest efforts to criminalize illegal forex trading activities will have any effect on gaming in Macau, but analysts note there has been some “chatter” in the industry.

On January 31st, the Chinese government issued a judicial interpretation of laws regulating certain foreign currency transactions. Effective from February 1, illegal forex trading would be a criminal offense, with those involved charged with engaging in an illegal business operation.

Those found violating the new rules could see jail terms of five years or more, and fines up to five times the profits made from the illegal activity.

However, Bernstein analysts have noted that efforts to clamp down on capital outflow have already practiced in China for some time.

“A strict reading of the rules implies almost all avenues of money movement outside of banks is restricted. But the reality is that this was largely the case already. For example, it has always been technically illegal to have pools of capital that match sellers and buyers of RMB – the backbone of underground banks,” said the brokerage.

“The new rules largely seem to highlight that these types of activities are not allowed and will be prosecuted. But we have seen crackdowns before on these activities prior to the announcement of these new rules.”

Bernstein said the implications on Macau gaming will be dependent on the level of enforcement.

“If the rules are all strictly enforced and the scope of government action against all forms of money movement is deep and broad, the impact would be severe, not only for Macau but for the HK real estate market and for many Chinese companies that shift funds offshore.”

Bernstein said most likely, the new rules boil down to transparency and the government wanting more information.

In its conversation with junkets so far, the brokerage said while they’ve seen some “chatter” around the new rules, this seems to be all there is at this stage.

“If a severe clampdown gets implemented, there will be a perverse incentive to shift to more under the table betting which would negatively impact VIP GGR in Macau… Another impact could be greater further consolidation among the junket entities to create a larger more diversified capital base,” said Bernstein.

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